By Peter Epstein of Epstein Research
I should start by saying that I’m reasonably well versed in mining stocks, I consistently lose money in all cycles! So, I thought I would breeze through this treatise in about an hour. And, I could have, but I would have missed some really good stuff. The information well known to me was a great refresher (the details, not the theme) and there was plenty of stuff that was new and filled in some gaps. For example, calculating gold equivalent ounces from a mine with more than just gold & silver– (page 73). Fun stuff, like that.
Early on in the E-Book Mining Stocks Investor Guide is the following quote,
“Mining stocks represent one of the last, ‘unknown’ frontiers in the capital markets. Even seasoned investors feel they are speaking a different language once they enter the world of assays, geophysics, and kimberlite. Unfortunately for most, we’re at a tremendous disadvantage when it comes to mining shares… “Now, thanks to James Fraser and Kevin Pederson, a bridge has been built across that knowledge gap. They reveal the complicated world of mining investments in a way that all can comprehend.”
Authors James Fraser & Kevin Pederson deliver the stated goal and more. And, they accomplish quite a lot in 74 pages (before appendices). No fluff, no tangents, no streams of consciousness. With this in mind, let me describe this informative, well written E-Book, without summarizing it, which would not do it justice. I did not read the book in chapter order, I skipped around, the more I read, the less I skipped. Of particular interest was Chapter 5, starting on page 16, with parts on country risk/location, management, share structure and financial position. This book is 3 years old, yet since its writing these exact factors have become even more important. Few people look at a firm’s entire capital structure; outstanding shares, preferred shares, warrants, options, convertible debt, debt, secured debt, cash and quarterly cash burn.
One page 23 is an important, depressing reminder of the laws of mathematics. If a stock goes down by 50%, going back up by 50% will not recuperate one’s losses, not even close. That stock needs to double, (up 100%) to get back to even. But wait, it gets worse, a stock down 75% (not as uncommon as one might think) would need to triple, (up 300%) for the investor to be back to break-even. A Counter-intuitive, reminder for buyers of the dip! Also on page 23 are a few examples of stocks that have soared coming out of a downturn. I can’t resist, according to Fraser & Pederson, Lion Mines went from 7c to $380, a return of 542,757%. [past results are no guarantee of future performance!]
I found pages 25 to 45 the most informative and in my mind represent the meat and potatoes of the E-book. Those 20 pages contain everything you need to know about mining, but were afraid to ask. How about this for instance page 34, Check out this link. Truly awesome tool to have at one’s disposal. Page 30, rule of thumb on assay results for 10 materials. Page 27-29, the heart of the mining mystery revealed. The following quote leads to a more complicated math problem then before, but calculators are permitted.
“Back of the Envelope
In order to determine the potential value of an entire property versus individual drill holes, an investor needs to know the price of the underlying metals and a few key variables:
Strike Length – The direction (horizontal) of the mineralization Width
Cross measurement of the mineralization in a drill hole Depth –
Vertical measurement of the mineralization
Specific Gravity – Density of the rock (ask the company for this #) Grade –
Metal content in an ore body (i.e. %, g/t)
Once we have this information and metal prices we can start to put things together and come up with an estimate value for the company on a per share basis.”
Pages 40-41 provide detailed descriptions and examples of the various resource reports, like Preliminary Economic Analysis “PEA,” Pre-feasibility Study, “PFS” and a Bank Feasibility Stud, “BFS.” Most of us know the order in which they are done, but little else. Lots of specific words defined on these pages. Here’s a great quote at the beginning of the “Read Between the Lines” section.
“Unless management truly believes they have a chance of good drill results, they will “milk” management fees and continue studying the initial results of the property. This is not always the case and drilling is initiated at some point, but it is common among, “area plays” to a new discovery to delay drilling their property in fear of bad results.”
On pages 50-51 there are details of, “promotional activities.” Luckily investors don’t have to worry about rouge promoters anymore as they’ve all been outed…. Wrong!!
Okay, I’ve gone through a lot of the book in no particular order, which is how my mind thinks and how I question management teams. Einstein had poor grades in school. Somehow that pertains to me. I really think that novices through experts should read this E-Book, one should be able to get through it in a few nights of study. I have it bookmarked as a reference guide. I’m not sure that buyers of this E-Book are permitted to print it? Mr. Fraser? Waiting for a response from James, waiting…waiting- Yes, one can print it out and bring it to parties, keep in the bathroom or use instead of coffee table books. I give the E-Book 2 thumbs up, my highest score! Mining Stocks Investor Guide. Twitter: @miningstocks